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Superannuation is very tax-effective, BUT…!

By Michael Blake, Head of Centuria Life

Superannuation is the most tax-effective vehicle in which to save for retirement, but it does come with restrictions.

Recent changes to the super system has meant people can no longer put as much money into super as they could previously. This has led to a resurgence of interest in alternative tax-effective savings options such as investment bonds. At Centuria Life, we are introducing 19 new investment options bringing the total to 23 available options for you to choose from. Here are some of the key advantages investment bonds have over super.

Tax paid by fund

Super fund earnings are taxed at a maximum rate of 15% within the fund, which is one of its key advantages. Investment bonds are also a tax-paid structure where the earnings are taxed at a maximum rate of 30%. This can be reduced by franking credits from shares, tax-deferred income from property and other allowable deductions.

You also don’t need to include your investment bond returns in your annual tax return during the life of the bond as these are taxed in the fund itself.

Tax-free earnings after 10 years

If the investment bond is held for 10 years or longer, the earnings are not subject to any further tax (personal tax and CGT events will not apply). This is attractive when compared with the personal marginal tax rates of higher-income earners or those with a marginal tax rate above 30%.

Flexibility in ownership

Ownership of your super can not be transferred.

With investment bonds the ownership of the investment can be transferred to any individual or entity if the transferring investor is at least 16 years of age. Transferring ownership of your investment bond has no tax consequences if the transfer is for no consideration. The transferee also has the benefit of the original start date for calculating the 10-year period and that date is not reset when the investment bond is transferred.

Access to your money

You are generally restricted from accessing your super benefits until you reach 65 or your preservation age. The preservation age ranges from 55 to 60. When you reach preservation age you can access your super as long as you are permanently retired.

With investment bonds, you can access your money at any time, regardless of your age.

Balance cap

Since 1 July 2017, a transfer balance cap applies to the total amount of super you can transfer into the tax-free retirement phase pension account. This transfer balance cap starts at $1.6 million (it will be indexed periodically in $100,000 increments in line with the CPI). Anyone with more than $1.6 million in the tax-free retirement phase will either have to move the excess back into the accumulation phase (where it is taxed) or out of the super system altogether.

There is no balance cap for investment bonds.

Contributions caps

Super contributions are limited to $25,000 each financial year for concessional contributions (which are paid pre-tax) and $100,000 a year for non-concessional contributions (paid from post-tax funds). In addition, anyone with a total super balance (comprising super, pensions and/or retirement savings accounts) of $1.6 million or more can no longer make any non-concessional contributions to super at all. This includes the bring-forward rule, which allows for larger non-concessional contributions in one year.

There is no limit to the amounts you contribute into your investment bond in the first year. After this, you are limited to a maximum of 125% of the previous year’s contribution without restarting the 10-year period. If you do want to invest higher amounts you have the option of starting a new investment bond.

Additional advantages

Investment bonds are simple, tax-effective, flexible, and offer investment options across a range of different asset classes and portfolio combinations. Unlike super or other investments, investment bonds do not form part of your estate and may be left to a nominated beneficiary (or beneficiaries), who will receive all proceeds tax paid on your passing. If there is no Nominated Beneficiary, the Investor’s estate will receive the proceeds from the investment. As investment bonds sit outside of the will, they can’t be challenged when a beneficiary has been nominated. You can also select Nominated Beneficiaries who are non-dependants who will receive the proceeds tax-paid.

Investment bonds may also offer protection from creditors in the case of bankruptcy.


While super continues to be the most tax-effective vehicle for retirement savings, changes to the super system have had strategy implications for many investors – and there’s no guarantee future governments won’t continue to tinker with it. Investment bonds are an ideal tax-effective solution to supplement your super or to help you achieve any of your long-term financial objectives.

Couple at their wedding

Centuria’s Investment Bonds offer a tax effective investment vehicle outside of superannuation. They have features that investors should consider if they wish to invest outside of superannuation. Suitability of an investment in a Centuria Investment Bond will depend on a person’s circumstances, financial objectives and needs, none of which have been taken into consideration in this advertisement. Prospective investors should obtain and read a copy of the Product Disclosure Statement (PDS) and consider the information in the PDS in light of their circumstances, objectives and needs before making a decision to invest. We recommend that prospective investors consult with their financial adviser. This article is not an offer to invest in any of Centuria’s Investment Bonds. Investment in Centuria’s Investment Bonds are subject to risk as detailed in the PDS. Centuria will receive fees in relation to an investment in its Investment Bonds. Issued by Centuria Life Limited ABN 79 087 649 054 AFSL 230867.